As we end this eventful week, I think it useful to spend a few minutes to look at what lessons were gleaned from the $24 billion government shutdown and debt ceiling showdown—and what those lessons tell us about what may happen in the months ahead (when a new bi-partisan budget is due—and the dreaded Debt Ceiling deadline returns once more).

From the view on Wall Street, much of this comes down to three critical questions:

1. Can the government be shut down again?
2. Can the debt ceiling threaten the full faith and credit of the U.S. again?
2. How likely is it that #1 and #2 [above] will actually happen?

As you can easily discern from the quotes above, the far right wing of the Republican party is not going away anytime soon. You would think that waging a fight that they could not win, while badly tarnishing the Republican brand would be enough to deter another budget and debt ceiling stand-off, but you would be wrong. The Tea Party is so fiercely determined to take down Obamacare—and Obama—they will stop at nothing to achieve their goals. In fact, the rhetoric and pronouncements coming from the Tea Party leadership has only been ratcheted up in the days after the government shutdown ended.

There is no doubt that their is a raging civil war in the Republican party, the likes of which we have not seen in decades.

In today’s Wall Street Journal, former governor of South Carolina and current President of the conservative think-tank Heritage Foundation, Jim DeMint, published an Op-Ed that embodies the current thinking of the Tea Party. The piece is entitled:

“We Won’t Back Down on ObamaCare”
“Fighting a law that is unfair, unworkable and unaffordable is reasonable and necessary.”

“Now that the government shutdown has ended…it’s worth explaining why my organization, the Heritage Foundation, and other conservatives chose this moment to fight—and why we will continue to fight. The reason is simple: to protect the American people from the harmful effects of this law.”

Other publications have also come out to show just how determined the far-right is to go back into battle. In a just-off-the-presses Bloomberg/BusinessWeek cover story, the magazine features a creepy-looking, distorted-devilish- depiction of Ted Cruz. Here is an excerpt of that story:

“Say this for Tea Party Republicans: They don’t back down. No apologies for triggering a partial shutdown of the federal government, then refusing to raise the debt ceiling without concessions. Condemnation rains down on them from the White House, from foreign capitals, from public opinion polls, but the Tea Party rages on.”

We even heard from the intellect of former Vice-Presidential candidate Sarah Palin: “
Those that can’t stand strong to defend our Republic…heck yeah, they have to be ‘Primaried’ or we’re going down.”

Yes, the Tea Party even turned “Primary” into a verb—a very dangerous one at that.
To “Primary” someone means that if any Republican who is up for re-election won’t play Tea Party-ball, then the far right will find a candidate in their district more in keeping with the fractious Cruz-like leanings. And we are seeing that in several districts already.

What does this far right war mean for the financial markets in the near-term?

Absolutely nothing.

Nothing? Why nothing?

Allow me a quick story to explain that answer: in 2003, I had the privilege of sitting in the living room of Dr. Peter Drucker, who since passed away. Drucker is regarded as the father of modern management and the grandfather of the modern day business book. He is also credited with coming up with such phrases as “management strategy” and “post-capital society.”

Dr. Drucker, then 93 years of age, had invited me to him home in Claremont, California, to interview him for a book I was writing (Inside Drucker’s Brain). In that interview, he told me something that will stay with me forever:

“I never met a CEO who could manage more than one priority at a time.”

While Dr. Drucker was describing the attention span of leaders, he might as well have been talking about the attention span of Wall Street and its participants. On Wednesday of this week, for example, all of Wall Street was focused on one thing: getting the budget deal passed by midnight. When it appeared that would happen the stock market shot up 200 points (despite some bad economic numbers that came out that day).

Today, Wall Street is focused on one thing: earnings. At least now they are focused on the right things, for nothing is as important as earnings. After weak reports from such companies as IBM and eBay, we now have much better earnings numbers from Google and GE. It is those reports that will likely determine the price action of today’s market. However, Wall Street ceases to surprise me: yesterday, for example, NASDAQ had a very strong day in spite of IBM’s weak sales numbers and eBay’s poor outlook.

Does this mean that the Tea Party’s dogged determination to dominate the headlines does not matter? Not at all. They do matter, and I feel that we will be right back in the soup in about two months. But they don’t matter today, or next week. They only matter when Wall Street’s attention is once again focused on them.

However, there is one exception that could alter the calculus: if that Fitch downgrade comes over the weekend or next week, which is very possible, that will underscore the severity of the problem that we know as “the new normal,”—Washington dysfunction. Then all bets are off as earnings will take a back seat to the realization that the greatest threat to Wall Street and our economy is the fact that the greatest country in the world can no longer govern itself with any more assuredness of a banana Republic.
—-Jeffrey A. Krames, October 18, 2013

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9:52 AM EST: KRAMES UPDATE: After a weak opening due to bad earnings from such firms as IBM, we have recovered a bit. But that is not what this update is about. It is about how much worse the deal that was made last night really is. Here is the latest: as part of the bill passed at midnight, both chambers of Congress must come up with a new grand budget by January 15th, 2014. That is three months away—time enough to come up with such a deal, right? That is, until you hear the following: even though there are two-and-a-half months left in the year, Congress will be in session for only 18 days in what is left of 2013. That’s right. While the rest of us work at least five days a week to make ends meet, Congress will work—on average—about one day a week for the remainder of the year. I know we have the best system of government and democracy in the world, but we are at an all-time low in the way we manage our government. This is bound to effect the markets in the weeks and months ahead.

***********************
Well, here we are, about six hours after the House, Senate and President ended the government shutdown after 16 painful days while averting economic disaster. This was a self-inflicted unmitigated disaster that did great harm to the Republican brand, and much, much worse, made the United States—and it currency—a less safer bet in the eyes of the rest of the word (and remember, China and Japan hold about 45 percent of U.S debt).

First, a word about the timing of the vote. This thing came down to the wire. After the Senate took up the vote in the mid-evening hours, it would take several additional hours before the House voted on the bill. At 10:21 pm, with less than 100 minutes to go before default, the House had their vote on the bill. You cannot cut it closer than that and that is why we are seen as a superpower that is governed like a banana republic. As a result, I would be shocked if Fitch elected not to downgrade The United States in similar fashion to the Standard & Poor’s downgrade of 2011.

Next, the numbers: according to Standard & Poor’s, the 16 day-shutdown cost our economy dearly: $24 billion and six-tenths of growth (or 20% of our forecasted GNP growth—a significant number). That is a chunk of change and a growth haircut that we could ill-afford at this very delicate time in our slow-moving recovery. We have also lost at least tens of thousands of jobs as a result of all of this tumult, and that number will surely increase when the government provides a concrete tally.

If that is not bad enough, both business and consumer confidence is down, and the entire woeful affair only kicked the can down the road for a couple of months (I have come to hate the phrase “kick the can.”). We will be right back here in January, for the government shutdown, and early February, for the Debt Ceiling.

For those of you who read me, you know how I feel about the junior senator of Texas, Ted Cruz. There is little doubt that it was this hard-right, self-appointed emperor of the Tea Party that sparked the government shutdown, with much help from his far-right caucus and powerful organizations like the Heritage Foundation. It is rare indeed for one member of congress to wield such power, especially one this fanatical, but there is no escaping the truth. And don’t take my word for it. Fellow members of the Republican Party, moderates like Representative Peter King, among many others, blamed Cruz from the start. Former presidential contender, Senator John McCain, called the Cruz crusade “the wrong ground, the wrong premise and the wrong fight to have.”

Despite the fact that about 20% of the country considers Cruz a tireless crusader, I believe he represents the worst of our government and our country. A demagogue who blames the rest of the world for the deeds that he himself set in motion. And, unfortunately for Wall Street, K Street, and Main Street, he is not going away anytime soon (although his fellow Republicans have threatened him privately to cool it lest he reap the wrath of smart and powerful Republicans like Mitch McConnell—who has no love lost for Cruz, to say the least). Perhaps worst of all, some credible pundits are calling Cruz the de-facto leader of the Republican party—a frightening thought. But who else is the leader of the GOP? That leadership vacuum is the Republican’s party greatest challenge in governing in a functional manner and worse for them, a real problem for the 2014 mid-terms and more important the 2016 presidential election. Can you imagine if Cruz actually gets the GOP nomination? He would be crushed in the general election, which is why it is so unlikely that he will be a contender in ’16.

What Wall Street is Focused on Today
Yesterday, Wall Street was focused like a laser on just getting the deal done. Today, comes the aftermath—the hangover. Like some fraternity beer-bash that trashed a dorm room while everyone got drunk and broke the furniture, Wall Street is waking up to an unruly mess that is the aftermath of the third longest government shutdown in U.S. history. The aforementioned numbers are sobering and likely to affect fourth quarter earnings and bleed into the first quarter of 2014.

That is why I believe that many Wall Street insiders will be focused on the implications of the 16-day government shutdown. Many fear that this latest episode will have a profound effect on our country and economy going forward. One noted analyst, Greg Vallieire, stated it well when he said “We have crisis after crisis after crisis and it has a corrosive impact on the economy…If you’re in a business, how do you make plans in this environment?

Major chief executives agree with that thinking. Here is Laurence Fink, the CEO of the behemoth asset firm BlackRock: “Most CEOs I speak to in the United States say they’re seeing a slowdown in business because of this…I was on a conference call with many of them, and I heard across the board, a slowdown from the American consumer because of this [the Washington dysfunction] narrative, so it’s having an impact on our economy already – and it’s going to have an impact on job creation at a time when we need more job creation.”

What else will Wall Street will be watching today? We we will get a jobs number today. That could easily move markets, but I am expecting another weak number due to the protracted shutdown. Perhaps most important, Wall Street is watching earnings and it is not liking what it is seeing. IBM is down well over 6 percent pre-market because of its sixth revenue miss in as many quarters. And eBay, a favorite company of mine but no longer a favorite stock, is down 5 percent pre-market, predicting a weak holiday online season. And just in: Goldman Sachs also disappointed and is down 4 percent pre-market. These bell-weather earnings reports bodes poorly for the rest of the quarter.

So, to sum up, I expect a tumultuous day and a possible substantial give-back of some of the gains of yesterday de to the hangover of the shutdown and poor earnings.

Please be sure to check back here throughout the day for frequent updates.
—Jeffrey A. Krames, October 17th, 6:30 AM CST

“It is easier to get into something than to get out of it.”
—Former Secretary of Defense and Architect of the Iraq War, Donald Rumsfeld, in Rumsfeld’s Rules

In 2002 I penned the first book ever published on then Secretary of Defense Donald Rumsfeld—A New York Times and Washington Post bestseller entitled The Rumsfeld Way: Leadership Lessons from a Battle-Hardened Maverick (Ironically, in 2008 and 2009 I did some work with Mr. Rumsfeld on his own memoir, Known and Unknown, Sentinel, 2012).

In researching my book, I had the good fortune to interview such figures as Dr. Henry Kissinger. But, despite the fact that Rumsfeld was the youngest Secretary of Defense (under Gerald Ford) and the oldest (under George W. Bush), there was almost nothing published on the man. For example, no major encyclopedia at the time even mentioned his name, never mind detailed his accomplishments. So how was I able to write such a book? By examining Rumsfeld’s own words—his speeches, his interviews and some of his own writings. It was then that I found “Rumsfeld’s Rules,” which consisted of more than 100 axioms that Rummy had written in the 1970s and updated from time to time.

Today, in the wake of a government shutdown entering its third week and a more-than-credible, unprecedented looming credit default of the United States, one of those rules stands above the rest to explain where we are today and how we got here:

“It is easier to get into something than to get out of it.”

Now, for those of you that have read my recent postings, you know what I think of the elitist, yet cowardly senator Ted Cruz. No one—except Cruz himself—disputes that it was Cruz that got the Republican party to shut down the government by insisting on some defunding or other alteration of Obamacare (The Affordable Health Care Act). The fact that this was a flawed strategy from the start should cannot be over-emphasized. For better or worse, this was Obama’s signature and sole piece of groundbreaking legislation. It has been passed by both houses of Congress, signed into law by the President, and upheld by the Supreme Court. There was always a zero chance that Obama would agree to any degree of blackmail by agreeing to diminish his signature bill to get a lifting of the Debt Ceiling or a re-opening of the U.S. government.

The result?

Obamacare, which had had embarrassingly-horrendous roll-out since it has gone live, has actually gone up in popularity by seven percentage points (so says the Wall Street Journal, hardly a bastion paper of the left). Obama can thank Mr. Cruz for that—since Cruz has now become such an abhorred figure of both the left and the right—that he single-handedly did precisely the opposite of what he set out to do (and something that Obama could not do himself. I think the junior Senator from Texas has forgot that Obama not only went to Harvard, he headed its Law Review).

“This is nuts. The president will never sign a bill defunding the singular achievement of his presidency. Especially when he has control of the Senate. Especially when, though a narrow 51 percent majority of Americans disapproves of Obamacare, only 36 percent favors repeal. President Obama so knows he’ll win any shutdown showdown that he’s practically goading the Republicans into trying.”

Yet, remarkably, Cruz still thinks himself a hugely popular figure despite the fact that it was his opinions, and more important, his actions, that has practically brought the #1 world economy to its knees. Cruz, the de facto head of the Tea Party, is now half as popular than the Democratic Party (despite the fact that the Democrats popularity has also gone down during this manufactured crisis). Cruz will become no more than a footnote to this emerging history, since he will go the way of such disreputable figures as Joseph McCarthy and Spiro Agnew. It was Cruz’s deeds and his Harvard/Princeton “strategy” that has brought the popularity of the GOP to 24 percent, an all-time low, and Obamacare, shooting in the other direction.

Now, let’s turn the tables and ask this question: What is the Obama strategy—what does he really want? This is where things get really interesting. Is it true—like Rand Paul has stated repeatedly—that he wants the unconditional surrender of the Republicans? No—he actually wants more—much more—and before you say that sounds like “nuts,” let’s look at history.

On this day, Sunday, the 13th of October, and four days before the potential default of America, following a Saturday evening White House budget discussion among Harry Reid, Charles Schumer and the President, comes new news: Obama not only wants an unconditional raising of the debt ceiling, he also wants to end the sequestration budget cuts—something that was unthinkable only a few days ago. Obama was pressing his advantage by opening up “a third front” and insisting that he not only get his “clean CR”—but more. This time he moved the goalposts. But you do not get to be president of the United States without being one of the most competitive people on the planet. And now that all attention is on the Senate and the talks between Senate Leader Harry Reid and Minority Leader Mitch McConnell, there is a new dynamic in place. Stay with me a bit longer as I once again rely on history to predict the way forward.

It was during Obama’s first term as President that Mitch McConnell stood on the Senate floor and declared that the first priority of his party was to ensure that Obama never got a second term. How did that go, Mr. McConnell? Now the fate of the country and the global economy rests, in part, on the man who vowed to kill Obama’s career—at a time that Obama holds every card in the deck and then some. This smells like a bad move by the Republicans. Did they forget that McConnell vowed to deny Obama a second term? The most competitive man in the world is not going to let this pass without exacting some degree of revege (“a dish best served cold,” and it is now ice cold, but no less important to the 44th president). And now we know how he intends to get it.

Before the Wall Street Journal polls that showed the Republicans at an all-time low, Obama would have been more than happy to get a clean Continuing [budget] Resolution [CR] and a lifting of the debt ceiling. Now we learn, following the Saturday night Democratic revenge-fest in the White House, that Obama has asked for more with what we’ll call his “third front strategy:” he now wants a lifting of the debilitating Sequester-level budget cuts—in essence, a blank check. All along, Obama has been playing chess while the Harvard/Princeton educated Cruz party has been playing checkers with all the skill of a four-year old. And it is pitiful figures like Ted Cruz and Mitch McConnell who are about to find out how badly they under-estimated the 44th president.

However, with that “third front strategy,” Obama may have shown us his cards. He may indeed be showing us how he intends to end this dangerous stalemate at the last minute and appear to be the “deal-maker-in-chief.” Since it is unlikely that Republicans will give in to this latest “demand” to lift the Sequester-level budget, he may be setting the stage for an 11th hour “capitulation” of that demand. This way, at least he can say that he gave the other side something. As for the timing of this, I do not see this happening until Tuesday, the 16th.

Obama has backed the Republican party into the worst corner in their history, and then has pulled the corner out from under them. With each passing “government shutdown” day the Republican party becomes less popular, and why shouldn’t it? After all, it was their strategy to defund Obamacare and shut down the government.

We all know it was a fool’s errand at best, and political nuclear war at worst, a war in which the GOP lost before they took the battlefield.

Obama will not give the man who declared to deny him a second-term any quarter. His goal is what Jack Welch, the former Chairman of General Electric, would call a “stretch goal” since the chances of achieving it is so remote: he wants to take back the House, a near impossibility. That is, unless he can play a role in lowering GOP popularity to crater to say 15 to 18 percent. If he can manage that, I believe he does have a chance to take back the House in 2014 and achieve new and important legislative feats, such as background checks for gun owners and new legislation on immigration.

Let me be abundantly clear: it is not spite that carries the day for this president, it is the hope that healthcare not be his sole legislative accomplishment. However, taking back the house in the mid-terms would be an incredible feat of brinksmanship, and will require Obama to put as many House Republicans on the unemployment line as possible.

The next five days will be like some terrible car-crash, difficult to watch but impossible to take your eyes off of. And lest Obama declare victory too soon, let’s remember that this is his economy. History always remembers the president in office when things go off the rails—they seldom remember the lesser-lights who helped things go afoul. But Obama knows that, too.

So what lies ahead? Unless I am dead wrong, we will see the Dow lose several hundred points—or more—before Obama gives an inch. He can afford to: after all, under him, the Dow more than doubled between early 2009 and today. Five hundred or a thousand points, which can be recovered quickly if the ship is righted before Thursday at midnight, is a small price to pay for a president who sees a chance at getting his House back.

This is a fast-moving event so please stay tuned for frequent updates!
—Jeffrey A. Krames, October 13/14, 2013, 9:45 a.m.

Here we are on day 11 of a U.S. government shutdown, and less than 130 hours from a Debt Ceiling Dooomsday due date. Despite those realities, yesterday the financial markets partied all day when it sent the Dow soaring for its biggest one day gain of 2013—a 320+ point rally. That party continued into Friday with a near 100-point gain (despite the fact that the Senate Republicans have just met with the president, which could result in a myriad of outcomes, yet to be disclosed). In fact, the 400+ point gain in the Dow is truly astounding, at least to me.

Why?

Because despite the fact that a few “kick the can” ideas have been floated and discussed, there is no evidence that any budget deal is imminent. Remember, we do not have only one “challenge,” to put it mildly, we have two impending threats to U.S. growth and our global economy. We have the shutdown of the government, and we have the looming Debt Ceiling stand-off—although the Debt Ceiling stand-off could be ended shortly. In all of the excitement on Wall Street yesterday, one fact is getting lost: and that is that House Republicans are still demanding “things” before they give in on anything, something that the president has rejected for months. And he means it. Really. He will not negotiate with a gun to his head or the heads of the American people. Yet they insist on demanding tax cuts and other GOP “favorites” like entitlements before they will agree to turn the government back on. Given that we are looking at the beginning of Week 3 of the shutdown next week, this is a very dangerous proposition. That’s because there is still much room for miscalculation, especially when you take into account the cast of characters, cuckoos, and egos involved.

So what has been the fallout of the government shutdown which rages on to this day? What happened to the GOP brand in all of this? That is where things get truly interesting. According to multiple polls, including Gallup and a Wall Street Journal/NBC poll, Republican approval has sunk to an all time-low—the lowest in 24 years (since Gallup started tracking these numbers). But what did House Leader Boehner expect? You should not be surprised when you give the keys to your car to an unpredictable, unruly, rebel without a boss-like-teenager, and find yourself mired in a deep ditch.

Consider these numbers:

* Less than one in four of the American electorate approve of the Republican party—worse than Watergate!

* Only one in five Americans approve of the Ted Cruz-led Tea Party

* Well over half of Americans blame the Republicans for the problems in Washington

* Less than one in three Americans blame the President for the shutdown

So what is the moral of the story? The Republicans have placed themselves in a huge box and then decided that the best thing they could do next was to assemble into a circular firing squad. In other words, we may be watching a truly historic event. The near-death of one of the two political parties of the United States—or at least a re-definition of one. Before I go too far down this path, however, historians like Douglas Brinkley have correctly pointed out that things like government shutdowns are quickly forgotten within a few years after they are repaired.

But this time could truly be different.

Yesterday I spoke to a very smart economist from the U.K. He told me what I already knew: that the rest of the world looks on at the lone super power that is America and is dumbfounded. How can such a powerful and rich and free nation be held hostage by heinous politicians that consistently put their own political needs above the needs of the American people? In fact, 70 percent of Americans feel that Republicans have put their own selfish political whims above the wishes of their constituents and the American people. It is that selfishness that stands between a budget deal and a proper functioning of the U.S. government. So the Senate Republicans will meet with President Obama in a couple of hours. My prediction is that this will not end in any resolution of the Government shutdown, even though it could result in an to the Debt Ceiling overhang.

Which means that the tiny faction of the worst part of our government still may have the power of getting their way by keeping the government shut down.

Here, on the 8th of October, 2013, we are about 200 hours from defaulting on the full faith and credit of the United States, an incredibly perilous place to be. And not only for America, but for every country that holds any significant amount of U.S. debt. And that is many, many countries around the globe, as the U.S. dollar is the world’s currency and our Treasuries are the most important paper in the world. Oh, and let’s not forget developing nations, which are too many to name here, that also rely on a stable global economy and a stable U.S. currency, lest they crash and burn with the rest of the world’s developed economies.

And if that is not enough on our political plate, we have entered Week 2 of a government shutdown, with no off-ramp in site. In fact, both of these dangerous situations are beginning to merge into a single incoherent argument—another potentially disastrous scenario as the possibility that neither situation gets settled by the doomsday deadline of October 17th (now nine days away and counting). If the Dow drops a couple thousand points before the 16th, then I predict that the House will put a Resolution on the floor that will kick the proverbial can down the road for a few weeks. But, that would only add new uncertainty and delay the crisis for a few weeks, hardly a desirable outcome given how much markets hate uncertainty.

Let’s back up and take these crises one at a time, because while both are bad, one is just terrible (the shutdown), and the other is calamitous (reneging on our bills—which means not raising the Debt Ceiling). However, if you listen to certain GOP members, some do not think a default on our debt as a crises—in fact, some seem fine with it. People like Ted Cruz and Rand Paul have gone on the record saying that a default is no big deal.

Having closely observed the financial market meltdown and the debt ceiling debate in 2011, I can tell you without equivocation that the defaulting on our debt has incredibly horrendous implications. We lost 2,000 Dow points—a 16% haircut—-when we almost went over the deadline in August of 2011. Let me put it another way: financial markets—which serve as an external scorecard for what goes on inside the beltway—basically crashed when we did not go over the deadline. And that was when there were far fewer schmucks in both chambers of congress. More on that later.

Back to the government shutdown: with one week already behind us, given the vitriol of the Beltway rhetoric, I think it is safe to assume that the shutdown will last at least one more week and join its twin disaster without settlement until October the 16th at the earliest. No one knows for sure, and I am no economist, but I feel that the financial consequences of a continued shutdown have been under-estimated. We could easily shave most of a full percentage point off of our GNP (Gross National Product) if things go south, and at the worst possible moment—when our recovery is weak and the Fed is about to decrease its monthly bond buying purchases.

However we got here, this is the key: it doesn’t matter who got us here (e.g. Cruz & company), it’s who will get us out that counts.

And pondering that outcome is what makes this an incendiary situation that burns hotter by the day. It is not only that there is no adult in the room, it is that there is no room (and no adults). As Speaker Boehner said on Sunday, “there may be a backroom somewhere, but no one is in it.” Let’s call it the empty room scenario—and that is what is causing me to lose sleep and rethink so much of what I hoped for the American economy in the 4th quarter and the early part of 2014 (remember, I see much of the world through the lens of the financial markets since I manage several of my family’s stock market portfolios–and right now, I am adding to my “shorts” every day).

Now, let’s get to the all-important leadership question. Because when you speak of huge enterprises, whether a multinational corporation or the U.S. government, everything ultimately comes down to leadership. Or more aptly, anti-leadership. The fact is there are no leaders in the House of Representatives. That’s right—none. And the most important—well, the one that at least has the title—John Boehner, is the greatest “mis-leader” (a Drucker term) of all. Why? Because he has completely lost control of both the debate and the control of his caucus. Let’s look at how this happened.

First, we recently learned that in the first week of September, Speaker Boehner shook hands on a backroom deal with his counterpart in the Senate, another mis-leader, Harry Reid, majority leader in the Senate. Boehner admitted that if Reid agreed to a $988 billion “sequester level” budget, Boehner agreed to put a clean bill (CR—Continuing Resolution) on the House floor. That means that there was a deal in place that if the Democrats backed off of their number of $1.058 trillion and gave in to the Republican number of $988 billion, there would be no default. All would be settled, even though the Democrats thought the $988 billion number too low: “We didn’t like the 988 number. We didn’t like it but we negotiated. That was our compromise,” Reid said. “The exact bill that he now refuses to let the House vote on. That was our negotiation.”

When asked about that deal, Boehner did not deny it. He said on Sunday that “his” caucus (although I do not think it is his anymore) basically changed their minds. Leaders—particularly in times of crisis—do not have the luxury of changing their minds. The cost of doing so is simply too high, as we are seeing today. Effective leadership depends on keeping one’s word and displaying “ruthless consistency.” Boehner has shown us the opposite. First he gave the keys to the House to Ted Cruz by doing something he said he wouldn’t by allowing the government to shut down, even though he said he would not permit a shutdown. But the Wall Street Journal, recently reported that the Tea Party executed this shutdown with precision. That’s right—this was a Tea Party/Ted Cruz plan all along. Many Democrats wanted to set the funding level in the continuing resolution at $1.058 trillion, rather than at the sequester level of $988 billion. But Boehner reneged, and he did it by delegating leadership to the Tea Party.

I know I have said this before, but it is the key: leadership cannot be bargained away or delegated. That is a ruinous path and Boehner walked straight into it with eyes wide open. Now he has no exit plan. At least no good ones and none that he has talked about since he refuses to put a clean CR (Continuing Resolution) on the floor.

So what happens now? Especially if you are like me—a stock market trader? First, do not count on any resolution to either the shutdown or the Debt ceiling crisis until October 16th, at the earliest, and not even then. There is only one thing that can end the stalemate sooner, and that is a disaster in the financial markets as discussed earlier. I do not see anything else that will end this stalemate without some huge external event like a stock market mini-crash.

History shows this time and time again. When a leader delegates his responsibilities, the unintended consequences are severe. Boehner has lost control of his conference and he has no one to blame but himself. If you give the keys to the car to a freshman idiot who cares only about his own political ambitions, you should not be surprised when the car ends up totaled—wrapped around some telephone pole in the middle of nowhere. That is where we might be heading unless someone blinks. And right now that seems like
more wish than a reality. So fasten your seatbelts, protect your stock portfolios, and hope that some form of leadership returns to our nation’s capital. And stay tuned by coming right back here for frequent updates.

The prospect of being hanged focuses the mind wonderfully.”—Samuel Johnson

For those that have followed my recent postings, you know how deeply the recent Syrian crisis has affected me—and why. While the recent deal worked out by the U.S. and Russia on eliminating Assad’s chemical arsenal appears to be “a good first start” to the Obama administration, we must never forget the heinous crimes that Bashar al-Assad has committed against humanity. For those crimes, the only acceptable outcome is accountability—Assad must stand before the world and stand trial for what he has done. Since any use of substantial force against his regime now seems unlikely (but not completely off the table), a public and transparent trial will be the only way to honor the tens of thousands of people he has brutally murdered—and those he continues to murder to this day.

More important, it will send a signal to the world that murderous dictators will be called to account and that no leader should ever calculate that they stand above international law and the common decency of man.

Tomorrow, Monday, September 16, 2013, the United Nations Secretary General Ban Ki-moon will make public the findings the weapons inspectors that went to the site in question about a week after the August 21 chemical attack. The primary mandate of the inspectors is to determine if an attack took place and what possible agents were used in the attack—not who perpetrated it. However, I remain hopeful that the U.N. inspectors may exceed expectations by bringing forth evidence that it was indeed the Assad regime that launched the deadly missiles that carried the poison gas. That would be an important win for the U.S. and the world, for it would directly rebuke the assertions of both Assad and his partner-in-crime Vladimir Putin. That is why I hope beyond hope that the U.N. now possesses such evidence. However, that may be too much to hope for.

Why? Because Assad, knowing exactly what he had done, bombed the living daylights out of that site for five days following his horrendous crime in order to eradicate all evidence of his deed. Whether he was successful we will soon find out. Tissue samples were removed immediately by doctors on the scene and both the U.S. and the U.K. found traces of sarin gas in those samples so there is really no doubt that the attack took place. Even Putin, in his hypocritical, sometimes fabricated New York Times Op-Ed admits an attack took place, but that it was the opposition that launched it (hence the word “fabricated”). Since the U.N. is an objective body [albeit which has shown little teeth in recent decades], their word carries more weight than the U.S. and other western nations. And since Putin specifically included mention of the United Nations in that Op-Ed, it would be a win for the world if that normally feckless body points a finger against Assad.

Speaking of the United Nations, if one visits their Website, they will find its “motto” right at the top:

“Welcome to the United Nations. It’s your world.“

In our world, we should hope that Assad gets tried by the International Criminal Court in the Hague, like the fellow murderous dictator, Slobodan Milošević, the former President of Yugoslavia. Milošević was charged with committing genocide and crimes against Humanity. However, after a five-year trial in which he represented himself, he was never convicted (instead he died in a Hague jail cell in 2006). I prefer the Saddam Hussein outcome. He was also tried for his unspeakable crimes—by the Iraqi Special Tribunal for the murder of 148 Iraqi Shi’ite—but unlike Milošević, was convicted and hanged.

Like Secretary of State John Kerry said last week, “Nothing focuses the mind like the prospect of a hanging.” [He was quoting the Samuel Johnson line].

However it comes, in whatever form, the world and its victims deserve justice, at the very least.

In this morning’s New York Times, Russian President Vladimir Putin wrote an Op-Ed piece on the possible use of military force by the U.S. against Syria in the wake of their gassing of their own people. This article, entitled “A Plea for Caution from Russia,” is a clever piece of propaganda that would make Hitler’s “Reich Minister of Propaganda” Joseph Goebbels proud.

Putin does not deny that gas was used in the August 21 chemical attack, he just claims that the opposition did it, despite the fact that these forces have no access to such weapons of mass destruction, nor the delivery system that was used in the attack. If the opposition had such an arsenal, al-Assad would have been targeted years ago and would probably be dead. But here is Putin, flying in the face of what the rest of the world knows to be true. Here is how he puts it: “No one doubts that poison gas was used in Syria. But there is every reason to believe it was used not by the Syrian Army, but by opposition forces, to provoke intervention by their powerful foreign patrons, who would be siding with the fundamentalists. Reports that militants are preparing another attack — this time against Israel — cannot be ignored.”

Hypocrisy does not begin to describe the Russian leader. He remains “KGB down to his DNA.”

Putin also takes aim at the U.S. and president Obama, labeling them, in essence, the world’s new bully (this from a man that has waged brutal thuggish wars on numerous occasions without ever consulting the U.N., helps to arm Syria on a near-daily basis, and even beats and punishes his own LGBT population).

He also takes another swipe at Obama because in the President’s address to the nation on Tuesday, he [Obama], had the temerity to use the phrase “American exceptionalism” in describing the country he leads. Asserts Putin: “I carefully studied his address to the nation on Tuesday. And I would rather disagree with a case he made on American exceptionalism, stating that the United States’ policy is “what makes America different. It’s what makes us exceptional.” It is extremely dangerous to encourage people to see themselves as exceptional, whatever the motivation.”

From a personal perspective, I have had the good fortune to visit most every continent throughout the world, and while I have enjoyed so many of the countries I have visited, I have never found a country to be more exceptional than the United States. My father, a holocaust survivor that survives to this day, has always said that the most valuable lesson he can impart on his children is how “fortunate we are to live in a country like the United States.” I carry that lesson with me every day, and now pass it on to my own two small children.

Why makes America so exceptional? The answers are too numerous to detail them all here, but I will give it a shot. One can point to the freedom that America offers, but more than 150 countries throughout the world offer its people freedom. America is exceptional because this is a country in which people can come from “nothing,” and become “everything.” There are so many examples of this, a country in which one can get educated or create a better mousetrap in their garage and rise up to become a business or political or any kind of leader. One of my favorite examples of this, that he himself cited in a recent interview, is former Secretary of State Colin Powell. A black man from the 1950’s Bronx who could have become president but still rose to the highest levels of our military and government. And he is one of so many who rose themselves up by meager bootstraps to make a huge impact on this nation and the world at large.

When I met with management pioneer Peter Drucker in 2003, he reminded me that Europe—for much of the 20th century (especially the first half)–unlike America, still held to long-held rules of birth and social status to determine one’s status in society. It was America, Drucker asserted, that was first to loosen those shackles so that people born anywhere to anyone could be whatever their own talent and ambition took them. I have also lived that reality, albeit on a much smaller stage, coming from the Bronx and rising up, over many years, as an author, publisher and now literary agent helping new authors to realize their own dreams.

What else makes us so exceptional—and what has—over our history? I can think of a few things: Thomas Jefferson and the U.S. Constitution, Henry Ford and the invention of the automobile, Orville and Wilbur Wright and their invention, our freeing of Europe from Hitler [that started with a day of unbridled bravery on the D-Day landing in early June, 1944], and being the first country to land a man on the the moon, to start.

But it is also a seemingly unending list of so many great Americans in our storied history that have helped make America such a singular nation. Here are some: George Washington, Benjamin Franklin, Abraham Lincoln, Mark Twain, Susan B. Anthony, Dwight Eisenhower, Thomas Edison, Theodore Roosevelt, Alexander Graham Bell, Jackie Robinson, Martin Luther King, Franklin Delano Roosevelt, Eleanor Roosevelt, John F. Kennedy, Albert Einstein, Walt Disney, John Steinbeck, Ernest Hemingway, Frank Lloyd Wright, Jonas Salk, Bill Gates, and Steve Jobs, to name more than a few.

But, ultimately, it is the exceptionalism of the American spirit, our persistent and consistent values, our unbridled idealism—and our unwavering wish to want more for the next generation than our own—that makes us the exceptional Republic we have become.

In summing up, I have little doubt that Putin’s ham-handed attempt to sway the American people against using force against his close ally, the murderous thug Bashar al-Assad, will backfire. Putin is proof positive that one cannot change their stripes. He under-estimates both the American people and its current occupant of the Oval Office—although it was Obama’s inaction that got us into this political quagmire in the first place (inaction is often a leader’s greatest enemy, and it certainly was in this instance). When Putin fails to come up with an acceptable U.N. Resolution that includes the threat of force against al-Assad [if al-Assad does not give up his chemical weapons as promised], I believe there is a chance that Obama will finally go against his own DNA and use force against the Syrian regime. That will reveal Putin’s puny attempt to gain acclaim on the national stage as nothing but a stunt and a stalling tactic. And that is when Putin will eat the words that he has thrown in our face on this day, September 12, 2013.
—-Jeffrey A. Krames

“Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”
—Justice Louis D. Brandeis

In the critical days before the Congress officially returns to work to weight the issue of military strikes against Syria, we have seen many more disturbing video images online and on television that prove beyond a reasonable doubt that the al-Assad regime had used sarin gas against his own people. These videos, taken on the scene in real time with cell phones and other “new” technologies, make a near-fortress like case that everything that America has asserted in regard to these attacks is true. However, whether or not that will make a difference to the Congress and the American public remains to be seen [for more on that read my previous posting here: http://jeffreykrames.com/2013/09/07/the-word-of-a-leader/].

While watching these heart-wrenching videos, I began to wonder what would have happened if such images existed in real time while Adolph Hitler waged his merciless war and subsequent genocide against the Jewish people. If so, would the world have allowed Hitler to get as far as he did? Would they have watched Hitler roll over the Polish army [so mis-matched atop horses fighting Hitler’s air force and armored Blitzkrieg divisions]?

First, a bit of history: Hitler lost a key election in 1932 by securing just under 37 percent of the vote. Paul von Hindenburg, an independent, crushed Hitler with 53 percent of the German electorate backing him. In the German “Weimar system,” the president had broad and sweeping powers, and Hindenburg made the most seriously flawed mistake of his presidency by elevating Adolph Hitler to the key post as Chancellor of Germany at the end of January, 1933. After Hindenburg died in office in 1934, Hitler consolidated his power as dictator of Germany by eliminating the office of the presidency and replacing it with the newly created post of “Führer und Reichskanzler” (“Leader and Reich Chancellor”).

But as early as 1933 Hitler began his war against Jews and other people within his own country. Here is how the New York Times reports it:

“Within months [of Hitler’s appointment in 1933], the first concentration camp was opened in the Bavarian town of Dachau. The first prisoners were political opponents of the regime. But it wasn’t long before other groups that the Nazis deemed undesirable were rounded up and sent away: in particular, Jews, homosexuals, and gypsies.”

The SS—Hitler’s elite paramilitary force—had long been terrorizing Germany’s Jews, beating them up and vandalizing their businesses. The Nazis believed that Germans, part of what they called the Aryan race, were racially superior to Jews. In 1935, their racist beliefs became official German policy with the passage of the Nuremberg laws, which stripped German Jews of citizenship and laid the groundwork for the horrors to follow.

On Nov. 9, 1938, the Nazis orchestrated a nationwide wave of attacks on Jewish businesses, homes, and synagogues. Almost 100 Jews were killed, and thousands were arrested and sent to concentration camps. The night became known as Kristallnacht—the night of broken glass.”

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I must note that Bashar al-Assad is no Adolph Hitler. Al-Assad is the dictator of a brutal regime that used chemical weapons to kill many people—yes. But their goals were far different and the number of dead in Syria does not come close to the number of Hitler’s murders, and Syria is a poor country with a limited military that does not compare to a fighting force capability as strong as say, Iran, never mind the United States. In 1939 Germany had the world’s third most powerful military.

We all know of Hitler’s atrocities—and as the son of Holocaust survivors who had lost most everyone at the hand of Hitler’s armies—I could not help wonder what would have happened if the world was able to see what Hitler began in 1933 as it happened. Would France and England have permitted Hitler to take Czechoslovakia and annex Austria [in the so-labelled Anschluss] in 1938? Would the U.S. have intervened far earlier in the second World War?

We, of course, cannot answer these and many more pressing questions with certainty this many decades later. However, I think it is a very fair to assume that despite the many pockets of anti-semitism of the day that persisted inside and outside the borders of the United States and Europe, the world would not have allowed Hitler to go unchallenged. Even Czechoslovakia could have given Hitler a fight, as it possessed dozens of well-armored divisions in 1938, but laid down its arms without firing a single bullet. We know now that Hitler correctly assumed that no one would have the stomach to wage war against him until September of 1939 when he attacked Poland. His armies were not ready for war before then, and the world was war-weary still after World War I.

Now, as the world faces another brutal dictator [albeit with far less military power than the Nazi Germany of 1939], what happens in the upcoming days and weeks will be of historical significance for many reasons. One of the biggest challenges for the world—more specifically the United States— is that there are no good choices left. Because the world watched as al-Assad slaughtered 110,000 of his people with mostly conventional weapons, we now have bad guys on both sides of the conflict. Still, that does not mean that inaction will not come without a heavy price.

It is difficult to believe that less than 70 hours ago it seemed a sure thing that America would launch strategic missile strikes to weaken Syria’s al-Assad’s regime—the same one that crossed Obama’s red line by murdering more than 1,400 innocents with sarin gas.

Now, just after the U.S. Labor Day holiday, that moment seems like some long-ago lost reality. In earlier posts I have discussed the importance of leadership moments. It now seems, with 20/20 hindsight, that there were far too many moments missed by Obama to save the world from a Middle-Eastern crisis that deepens by the day. Especially since Iran and Russia are two major players determined to undermine the west—countries with leaders whose actions will only complicate and confuse the muddled morass that Syria has become in such a seemingly short time.

But that’s the point. Has it really been a short time? The short answer is “no.” The civil war that has raged in Syria did not start a week ago or a year ago or even two years ago. It began in the Spring of 2011, and it did not take all that long for certain American politicians to recognize the war for what it was: a cancerous, Middle-Eastern crisis that had the ability to light up the Middle East in some tinder-like- box regional war.

Now, in the early days of September 2013, the chances of that stark reality seem more possible than ever.

Let’s look back at what did not happen in the last 30 months to bring us to this leadership moment. Forget 2011, that was only the beginning and no one could imagine that Bashar al-Assad would become a modern- day, Hitler-like leader on the modern stage. After all, he enjoyed listening to musician Phil Collins and was described by one credible biographer [who met with him on numerous occasions] as a as a geek—a nerd-like leader—certainly not a harsh dictator that would use every weapon in his arsenal to kill and maim thousands of his own citizens.

But—by 2012— a new al-Assad had emerged, the real Bashar al-Assad. That is when two never-shy Republican leaders—Presidential contender John McCain and Senator Lindsey Graham—warned Obama and the world to the perils of Syria and al-Assad. They understood that the Syrian conflict was about far more than Syria—it was about Iran—the only Middle-Eastern nation that had the capability of becoming a nuclear country besides Israel. [The Iranian red line is a whole other story—one that now seems more likely to be dealt with by Israel when the time comes].

It was enough for McCain and Graham that Syria had 5,000 Hezbollah fighters backed and financed solely by Iran. They urged the American president to arm the Syrian Free Army. But to Obama—the anti-war president, it wasn’t that simple. There were simply too many factions—including al-qaeda—on the anti al-Assad side of the war. Better not to involve America in a messy and complicated civil war in the worst neighborhood on earth. In retrospect, especially when it seemed that al-Assad was losing, it is clear the United States missed its best chance to level the playing field and tip the balance against al-Assad and his Iranian proxy fighters. But that, too, is “Monday morning quarterbacking,”— after-the-fact analysis.

However, hindsight is not useless when it provides lessons for the future. By arming the right factions fighting against al-Assad, the U.S. could have tipped the scales against him. But the hands-off American leader stayed true to his doctrine and stayed out of it. Even in late 2012 or early 2013 the Syrian war was still not something that rose to the level of U.S. involvement, Obama argued. And that was Obama’s second Syrian miscalculation, but unfortunately, not his last. [it is interesting to note that it was another U.S. president that was always on guard against “miscalculation,” and that was the 35th president, John F. Kennedy. It was a number of correct calculations on his part during those 13 days that saved the world during the Cuban Missile Crisis].

Apparently it did not occur to President Obama that he might have miscalculated. That is, not until his own credibility, after al-Assad used his unthinkable chemical agents—and the credibility of the United States—became the new table stakes in this far-away civil war. Once Obama realized he under-estimated the significance of the Syrian war and the brutal dictator who led it, his first instincts were the right ones. Attack al-Assad as soon as possible—before the regime could prepare and hide key assets in such civilian populated places like hospitals and schools. Show him, Iran, Russia and the rest of the world that al-Assad’s actions would not stand. That was August 31st—when it was thought that at least some sort of limited war would be waged by Obama under the War Powers Act.

But then the other Obama—the anti war Obama— appeared, and mucked up the works in ways that might very well be studied for decades as the flinch that brought the Middle East to its knees. At this point, with so many players, countries and politics in the mix, only time will tell how all will play out on this increasingly dangerous chess board. But the signs are disconcerting at best, and terribly ominous at worst.

Russia has volunteered to send delegates to speak to the American Congress—an unprecedented act as far as I can tell. Iran remains eerily silent, secretly delighting at the inaction of the United States. If the U.S. won’t back up its own red line, they won’t attack us, reason the Iranian leadership. That may or may not be true, and if it is, surely Israel will act. But that is a topic for another day.

For now, the stakes are growing by the day as the American electorate sides with the anti-war Obama. Stay out of it, they argue. Who wants another Iraq? But they are fighting the wrong war at the wrong time, something the world did some 75 years ago, when many underestimated a different leader. to catastrophic results. Despite the two recent wars started by George W. Bush, America has had a history of entering wars reluctantly and too late. The most vivid example of that is World War II. Even though Hitler’s war had already rolled over most of Europe—it took the Japanese attack on Pearl Harbor in December of 1941 to get America to enter the war. [Hitler’s war against Jews was well known by that point, but it is lesser known that in the late 1930’s and early 1940’s, anti-semitic factions in the U.S. helped to give cover to Roosevelt to stay out of the European conflict].

I fear many outcomes of what appears to be a fairly contained conflict (if you do not take into account the two million refugees that have already exited Syria, nearly a third of its population—with half of that incredible number being children under an average age of 12). The range of thinking in the U.S. Congress on this topic is as fractured as I have ever seen it. Some want to see the details of a comprehensive and strategic plan to bring down a monstrous regime, while others do not want us to go in at all. Most congressional leaders are torn—somewhere in the middle. Even if Obama gets the vote to wage “war,” which I believe he will, it will be such a watered down version of the original document that he will be handcuffed in what he could actually do against Syria, leaving little room for contingency plans if some awful “what-if” scenario plays out in the region [and I believe it will].

And what if the 113th U.S. Congress does what it usually does? [hint: nothing].

What will Obama do then? And what will happen to the U.S. reputation on the world stage? More important, will the conflict in Syria spread to the rest of the Middle East? And how will Russia’s appearance in the Eastern Mediterranean with its state-of-the-art navy hardware play out against the U.S. presence already there? The outcomes are too many to ponder, and none of them are good. Which is what keeps me up at night, writing such verbose pieces about events in far-away lands. It used to be only the health and well-being of my loved ones that kept me up at night…that, and maybe the stock market. Now look at where we are.

However, It is where we might end up, however, that truly scares the living daylights out of me.

This trusim is something I alluded to in my last blog posting, and for me, this is a fascinating reality: “If it isn’t a book, it isn’t a stock.” Having just celebrated my 30-year anniversary in the business book industry, I certainly have seen my share of “phenomena” books. Electronic day trading was a phenomenon in 1998 before dying a quick death by late 2001. In the early 1980s, in the wake of the stunning success of In Search of Excellence, every publisher and their mother brought a book out with excellence in the title. That worked for a few weeks before that market died.

Unlike a hot topic like electronic day trading, most social media books have been spectacular failures from the start. I don’t even need the Nielsen Bookscan numbers to know that, for I know intuitively that this genre of business book would die on the vine. How did I know? Because social media books are the classic case of publishers barking up the wrong tree. Publishers have an incredible penchant of publishing the hell out of the wrong topic at the wrong time. Sure, a few social media books did well, but they are the exception, not the rule. While social media is still growing by double-digits in developing nations across the globe, few top tier publishers are bringing out any new books on this topic. Why? Because people who are active on Facebook and Twitter spend hours on these platforms—and no time reading books on the topic. They don’t have to. They know how to access and use these sites so why do they need a book telling them how important it is or how it will influence their lives or society as a whole?

There is also great competition entering the Facebook space: for example, Pinterest, the “online billboard,” is quickly emerging as the next big thing in social media.

This brings us back to the stock market. As I have mentioned before, I have been short Facebook (that is, betting it to go down) since the end of May. I have always believed that there is a dearth of leadership at the $60 billion company, especially in the chief executive’s office. I knew that if publishers could not make a go of social media books, then the biggest company on the block would have a hard time making it as a publicly traded company. The problem isn’t that the customers aren’t there. With nearly a billion users, they have the eyeballs that would make 99 percent of companies salivate. The problem is that they haven’t found a way to monetize their hundreds of millions of users. And when sales can’t keep up with users you have a problem. And when the entire industry is shifting to mobile, a much smaller platform for advertisements, you have an even bigger problem. While I think there is a good chance Facebook will figure it out eventually, it will require time and a kings ransom to get it right. While the firm has money, they don’t have much time. In late 2012 there are far fewer investors out there and more traders than ever. Fewer and fewer people are buying and holding stocks. That means that companies have less time than ever to right the ship. If Facebook can’t get mobile revenues into the multi-billions by say, Q1 2013, I could see the stock sinking into the high single-digits. Single digits? That’s impossible right? Ask Zynga, a firm that, at the time of this writing is trading at $3 per share after hitting a high of just under $16 per share in April of 2012. Or the discount coupon company Groupon (another company I am shorting), which is down almost 80 percent since it went public last November.

The truth is that no one knows what will happen to Facebook stock. But one thing is for sure: as a book category, social media books are likely to go the way of Friendster and MySpace.

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About Jeffrey

As former Vice President and Publisher of McGraw-Hill's trade business books division, Jeffrey Krames has personally edited and published more than 275 business books, including many award-winning, best-selling titles on business luminaries that include Jack Welch, Michael Ovitz, Ross Perot, William Paley, Michael Dell, Bill Gates, Herb Kelleher and Lou Gerstner among others. Read more...